Mr. Gaurav Jani - Research Analyst at Prabhudas Lilladher Pvt. Ltd.
- NII beat estimates by 13% driven by better margins; loan growth was weaker.
- Asset quality improved due to higher recoveries; OTR pool was stable QoQ.
LIC Housing Finance (LICHF) saw a good quarter with a positive surprise on PAT led by beat on all fronts barring loan growth, that was a miss as volumes were impacted due to third covid wave. The company guided that disbursals could grow by 15% in FY23 and builder loans could see an uptick that might contribute 5-10% to credit flow. NII was ahead due to higher NIM driven by lower funding cost. Benefit of borrowing cost could continue, that might cushion NIM considering that fixed rate liabilities contribute 53% and interest rates could harden. Asset quality improved with GNPA/NNPA reducing QoQ by 40bps each led by better recoveries. LICHF performed well in H2FY22 while valuation at 0.8x is attractive. We maintain multiple at 1.0x FY24 ABV but slightly raise TP to Rs435. Upgrade from ACCUMULATE to BUY.
Earnings beat driven by better PPoP and lower provisions: NII was higher at Rs16.3bn (PLe Rs14.4bn) due to NIM beat as loan growth was softer at 8.2% YoY (PLe 10%). Disbursals were weaker at Rs193bn (PLe Rs228bn). Repayments at Rs116bn too were higher. NIM surprised positively at 2.7% (PLe 2.4%) owing to lower funding cost. Other income was stronger at Rs1.1bn while opex was better at Rs2.5bn. PPoP was ahead at Rs14.9bn (PLe Rs12.4bn) led by better NII and other income and lower opex. While provisions were controlled at Rs1.8bn (PLe Rs2.5bn), gross and net stage-3 was lower and improved QoQ by 40bps each to 4.6%/2.6%. PCR increased QoQ from 39.7% to 43.0% which was a positive. PAT was Rs11.2bn (PLe Rs7.4bn).
Third covid wave impacted credit flow; outlook better: Disbursals were hit owing to third covid wave that affected operations. Individual continued to drive most of the credit flow and retail home now contributes 81.3% to total loans. The management is confident that disbursals could grow by 15% in FY23E as competitive intensity has reduced driven by lower systemic liquidity. There are signs of a real estate upcycle and hence the builder segment could contribute 5-10% to incremental business. Asset quality improved QoQ due to better collection efficiency. There were recoveries of Rs3.5bn in the builder portfolio of which Rs700mn was from the written-off pool. Restructured portfolio was stable QoQ at 3.1% and the split between project and retail is 50:50.
Higher proportion of fixed rate liabilities to cushion margins: NCD which are fixed rate in nature, make up for 53% of borrowings while 95% of assets are floating. This could benefit LICHF in a hardening interest rate environment as increase in yields could outpace rise in funding cost. Liabilities worth Rs250bn are expected to mature in FY23E and incremental funding cost could be range between 6.5-7.0% which would be lower than existing NCD cost of 7.4%. Assuming slippages in FY23 and FY24 would be controlled, NIM could either remain stable or improve from hereon. We have projected NIM for FY23/24E to remain stable at FY22 levels near 2.3%.
Shares of LIC Housing Finance Limited was last trading in BSE at Rs. 311.95 as compared to the previous close of Rs. 307.00. The total number of shares traded during the day was 70575 in over 2359 trades.
The stock hit an intraday high of Rs. 312.50 and intraday low of 304.70. The net turnover during the day was Rs. 21794481.00.